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Political Economy of Oil in Alaska: Multinationals vs. the State
In The Political Economy of Oil in Alaska: Multinationals vs. the State, four University of Alaska professors tackle a question daunting in breadth and import: How has a young and sparsely populated northern state managed its relationship with the multinational corporations (MNCs) that developed the largest oil production complex in the United States, including its transportation arm? The answers play out dramatically on a rapidly changing northern stage, where economic, environmental, and social decisions are made in remote political centres; Native interests are integral to the tapestry. Described by its authors as "a comprehensive study of an often contentious alliance" (277), this book is a collaborative effort that contains a wealth of documented historical information and interesting insights. It will be used by students of economic, social, and environmental issues in the North and elsewhere. But the sanguine conclusion - that Alaska's state government has developed the institutional strength and regulatory skills necessary to negotiate and implement resource policy on an almost equal footing with the MNCs - is seriously undermined by contradictions and gaping holes in its methodology and its empirical foundations.
The opening chapter of the book lays out the theoretical framework for assessing the state's relationship with MNCs, discussed below. Chapter 2 outlines Alaska's petroleum history, highlighting selected events that preceded and followed the 1968 announcement of the discovery of the continent's largest conventional oil field at Prudhoe Bay on Alaska's North Slope. Oil production began in 1977 and peaked in 1988, when production began declining from two million barrels per day to current levels, less than one-third of the high mark. The next six chapters make empirical contributions to understanding Alaska's petroleum encounters. Chapter 3 examines electoral politics and the oil industry's influence on campaign financing. Chapters 4 through 7 focus on the state fiscal system and address issues such as the state's need for revenue stability in the face of volatile oil prices, the Alaska Permanent Fund and its annual dividend (PFD), other resource funds, and state strategies for dealing with dependence on declining oil revenues. Chapter 8 describes the state's environmental regulatory efforts. Chapter 9 heralds the state of Alaska's "powerful administrative capability" (234) and "growing capacity . . . to manage its own destiny" (246).
Each chapter is a separate, annotated work by one of the four authors, each of whom brings different background, viewpoints, and theoretical perspectives to the task. The book begins with a discussion of external domination of resource-rich states, focusing on a theory known as "mature dependency," borrowed from Canada's experience, to examine how a state with strong government institutions copes with development tied to a single resource. But the bulk of the book relies primarily on a different approach that attempts to capture the dynamics of Alaska's vital state-industry interplay by offering loosely structured observations on political bargaining processes. The result is a somewhat disjointed narrative sprinkled with frequently conflicting observations and conclusions.
For example, Chapter 3 concludes that "[t]he oil and gas industry's influence on state politics reflects its dominance of the state's economy" (76), but notes that "Alaska's political process has become much more permeable to interests other than oil in recent years" (77). Chapter 8 finds that the regulatory process contributes to effective mitigation of environmental disturbances, even though British Petroleum's 2006 oil spill on the North Slope "casts serious doubt on the regime's overall effectiveness" (226). The final chapter reports that "Alaska, as a resource owner, potentially can equal the influence of the oil industry and is not dependent on it" (236). But the book concludes that Alaska is "a mature but dependent state" (246).
Despite its subtitle, the book short-changes discussion of the MNCs. Although names and exact percentages have changed with mergers, three major MNCs - now British Petroleum, ConocoPhillips and ExxonMobil - have historically controlled upwards of 90% of North Slope production and its vital market link, the Trans-Alaska Pipeline System (TAPS). The book does not discuss the implications of this highly unusual concentration of power, which gives three companies extraordinary influence over the nation's largest oil field, future northern development, and the entry of potential competitors. Also omitted are data and analysis regarding MNC costs and profitability - key aspects of a lurching industry-government see-saw.
It is difficult to accept the conclusion that there is a rough state-industry parity when the book and its four economic chapters ignore or scarcely mention important issues such as petroleum litigation, pipeline tariffs, potential antitrust questions, the state's financial auditing capabilities, and the effects of industry lobbying efforts on petroleum-related legislation. The book's treatment of oil price volatility is limited to discussion of price crashes and overlooks price spikes. Crashes create havoc for an oil-dependent economy; spikes inspire accounting chicanery intended to maximize profit shares and have recently enhanced the attractiveness of alternative fuels, confounding industry planning.
The book's optimistic conclusion is further undermined by its own trenchant observations
that the will to restrain industry dominance is vitiated by two factors: a trend
toward partnering with industry and fear that criticism of the industry would
inhibit investment necessary to arrest North Slope production decline. On the
socio-economic front, the book presents no hard statistics on Alaska's economic
growth or the distribution of petroleum wealth. In contrast, however, the authors
are great fans of the Permanent Fund and the PFD: the total annual pay-out to
an individual Alaskan receiving the PFD over this program's first 26 years - $27,536.41
- is mentioned in three separate chapters.
One of this book's major shortcomings involves its treatment of the "resource curse," a prominent theory that calls attention to two phenomena: (1) the tendency for resource-rich countries or economies to perform worse, in terms of overall economic outcomes and governance, than those with fewer resources; and (2) the "Dutch disease," or the tendency for those economies that do perform well overall to suffer decline in pre-existing peripheral sectors due to resource sector overheating. One of the principal causes of the resource curse is known as "rent-seeking," or the inappropriate pursuit of what economists call economic rent: the gap (usually large, but volatile) between total resource extraction costs (including a reasonable profit), and the price the commodity commands.
"The book's central premise -- that the state of Alaska now defends its public interests 'on a more or less equal footing with the oil and gas industry' -- is rendered suspect by contradictions, omissions, and skewed conclusions, and by countervailing evidence the book itself presents, including industry financing of political campaigns and serious doubts about environmental regulatory effectiveness. The authors thank British Petroleum and ConocoPhillips for financial support during the project's final stage; I do not see this as evidence of corruption. Nevertheless, this book's shortcomings demonstrate the need to exercise great care and independence when working in this arcane and complex arena. Researchers can make a significant contribution to the study of petroleum development by utilizing Alaska's celebrated (but relative) transparency to identify information process and data deficiencies, as well as the subtle but pervasive powers of oil industry seduction."
Concerns regarding Dutch disease fare little better under the book's Alaska lens. Chapter 7 praises the Alaska Permanent Fund for absorbing petroleum revenue, thereby damping the inflationary effect of "too rapid expenditure of natural resource income, the so-called 'Dutch disease'" (185). The PFD is also credited for stimulating both Alaska's economy and that of its peripheral economic sectors; this apparent paradox is unexamined. No hard information on statewide and sector economic trends is presented to confirm the assumed divergence between Alaska's experience and that of economies elsewhere that suffer from the resource curse, or to evaluate petroleum development impacts on Alaska's Native and other rural populations.
The book's central premise - that the state of Alaska now defends its public interests "on a more or less equal footing with the oil and gas industry" (20) - is rendered suspect by contradictions, omissions, and skewed conclusions, and by countervailing evidence the book itself presents, including industry financing of political campaigns and serious doubts about environmental regulatory effectiveness. The authors thank British Petroleum and ConocoPhillips for financial support during the project's final stage; I do not see this as evidence of corruption. Nevertheless, this book's shortcomings demonstrate the need to exercise great care and independence when working in this arcane and complex arena. Researchers can make a significant contribution to the study of petroleum development by utilizing Alaska's celebrated (but relative) transparency to identify information process and data deficiencies, as well as the subtle but pervasive powers of oil industry seduction.
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